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District Court of Appeal, Third District, California.

FARMLAND IRRIGATION CO., Inc., Plaintiff and Respondent, v. George DOPPLMAIER, Defendant and Appellant.*

Civ. 8795.

Decided: August 06, 1956

Messrs. Wilke & Sapunor, Sacramento, for appellant. Theodore H. Lassagne, Glendale, for respondent.

Darrell C. Mansur invented certain improvements for field apparatus used in the irrigation of agricultural lands. A contract between Mansur and Stout Irrigation, Inc., an Oregon corporation, was executed in December, 1949. This contract, which was called a license agreement, provided that Stout had the right and license to make or have made and to sell irrigation apparatus embodying Mansur's inventions. Stout had the right to grant sub-licenses but assumed responsibility for payment of the royalties on any sub-licenses. The agreement provided for royalties of three per cent on licensed sales. The expression ‘sums received from licensed sales' was defined as that received from apparatus and parts thereof, the manufacture or sale or lease of which apparatus would infringe any patent right of Mansur.

After the agreement was executed, George Dopplmaier purchased Mansur's patent.

Stout Irrigation manufactured and sold the field sprinkling apparatus until January 31, 1952. At that time the company was dissolved. The assets were distributed to the shareholders who sold all the assets to Farmland Irrigation Co. The agreement of sale provided for assignment of all choses in action owned by Stout. Thereafter, Farmland continued the business of Stout, purported to be the successor of Stout and so represented itself. Farmland continues to manufacture and sell field sprinkling equipment incorporating Mansur's invention. Dopplmaier does not recognize that Farmland is the successor to Stout and refuses the tender of royalties made by Farmland.

A controversy arose between Dopplmaier and Stout as to the computation of royalties prior to the dissolution of Stout; Stout computed the royalties only on those parts which incorporated the improvements patented by Mansur; Dopplmaier contended that the royalties should be computed upon the sale of all the component parts which make up a complete unit. In June of 1951, Dopplmaier filed an action in the United States District Court of Oregon for an accounting and the royalties he alleged were due under the licensing agreement. Stout answered, and thereafter Farmland sought to intervene. This requested intervention was denied. An appeal was taken, and the United States Court of Appeals for the Ninth Circuit affirmed the decision denying intervention, though the court said that Farmland would be bound by any decision against Stout. Farmland Irrigation Co. v. Dopplmaier, 9 Cir., 220 F.2d 247.

Prior to this decision of the Circuit Court of Appeals, Farmland filed a complaint in the California Superior Court in Sacramento for declaratory relief, asking that Farmland be adjudged successor of Stout, for a declaration of Farmland's duties in respect to the royalty provisions of the license agreement, for injunctive relief restraining Dopplmaier from continuing to sell the apparatus and license to others, and for an accounting and damages for so doing. Dopplmaier moved for a stay of proceedings, alleging that the same issues were before the federal court in Oregon. The California court refused a stay on the grounds that Farmland was not a party to the Oregon action nor was there any assurance that it would ever be permitted to intervene and that it would be best to determine Farmland's rights now.

Dopplmaier has appealed from the decision of the court which declared that the rights accruing under the agreement were assignable; that they had been assigned by Stout to Farmland; that Farmland was the successor to Stout; and that the royalty was to be computed on the sale price of those units of the equipment which incorporated the Mansur improvements and not on the apparatus as a whole. Respondent has not appealed from the court's denial of injunctive relief, accounting and damages. Respondent has not appealed from the declaration that appellant is the assignee of Mansur, and, indeed, respondent cannot, in view of its course of action in carrying out the agreement in apparent recognition and acceptance of Mansur's assignment.

Appellant's main contentions are: First, the license agreement is not assignable; second, Farmland is not the successor of Stout; third, the conclusion as to the royalty computation is not supported by the evidence; and fourth, the trial court erred in not staying the California proceeding until the Oregon proceeding was determined.

The first question to be decided is whether or not the license agreement was assignable, and this is dependent upon the determination of whether the agreement was an assignment or a license. A patent owner has three rights. They are the right to make, use, or vend. If he releases all those rights so that he retains nothing, the release may be an assignment, but if he does not release all those rights, it is only a license. 69 C.J.S., Patents, § 223, page 737, citing authority. Mansur granted Stout the right to make and sell and lease and the right to license sub-licensees. Stout was not granted the right to use the product himself unless the provision to lease can be so construed. Mansur also retained the right to make and to sell. It is apparent that Mansur did not release all the rights he received. Accordingly, the instrument should be construed as a license.

The trial court was apparently impressed by the lack of a clause restricting assignment and by the fact that the assignability of contracts is favored and by the fact that the licensee was authorized to issue sub-licenses. Whether a patent license can be assigned is not a question to be determined by the general law of contracts which prefers assignability or by the California law which prefers assignability. A patent is the creature of a federal right. Beale, in his work, ‘The Conflict of Laws,’ Vol. 2, page 986, asserts:

‘* * * Patents and copyrights, created by national law, are assignable only in the form provided in that law.’

We must, therefore, look to the rule of the federal courts. Any other rule would make the result depend upon where the case was brought.

Ridsdale Ellis in his work ‘Patent Assignments' (3rd Ed., 1955, sec. 49), states that the rights transferred under an assignment are assignable unless the instrument specifically states otherwise, while those under a license are not assignable unless the instrument expressly so provides. In Rock-Ola Mfg. Corp. v. Filben Mfg. Co., 8 Cir., 168 F.2d 919, 922, certiorari denied, 335 U.S. 892, 69 S.Ct. 249, 93 L.Ed. 430, the court stated:

‘* * * The mere granting of a license to make, use or sell a patented article does not confer upon the licensee the right to transfer his license unless the patentee has consented thereto. Hapgood v. Hewitt, 119 U.S. 226, 7 S.Ct. 193, 30 L.Ed. [369] 380; Oliver, Finnie & Co. v. Rumford Chemical Works, 109 U.S. 75, 3 S.Ct. 61, 27 L.Ed. 862; Troy Iron & Nail Foundry v. Corning, 14 How. 193, 14 L.Ed. 383; Westinghouse Electric & Mfg. Co. v. Tri-City Radio Electric Supply Co., supra [8 Cir., 23 F.2d 628]; Reynold Spring Co. v. L. A. Young Industries, Inc., 6 Cir., 101 F.2d 257; Walker on Patents (Deller's Ed.), Sec. 388.’

It cannot be seriously argued that the patentee had consented to the transferability of the license because Stout had the right to grant sub-licenses if he assumed responsibility for payment of the royalties accruing thereunder. In view of the foregoing authorities, since the patentee has not so consented, it would appear that the trial court was in error in concluding that there was a valid assignment. Farmland cannot be an assignee since the purported assignment was beyond the power of Stout.

The complaint in the action for declaratory relief alleged that Farmland is a successor to Stout. The federal courts have created an exception to the rule that a licensee cannot assign his rights by holding that a successor to a licensee's business may succeed to the licensee's rights to any patents. Neon Signal Devices v. Alpha-Claude Neon Corp., D.C., 54 F.2d 793. The basic question, therefore, arises as to whether or not Farmland is a successor to Stout.

Where one succeeds to the entire assets and assumes the entire liabilities, a successorship exists. Neon Signal Devices v. Alpha-Claude Neon Corp., supra. Appellant contends that the evidence does not support the finding of successorship since the agreement of sale did not specifically provide for the assumption of the liabilities arising under the royalty agreement. However, whether or not an express assumption of the liabilities is necessary for successorship need not be determined here. A successorship has been held where a firm has been incorporated, Lane & Bodley Co. v. Locke, 150 U.S. 193, 14 S.Ct. 78, 37 L.Ed. 1049; where a corporation has succeeded to the entire business by a direct purchase of another corporation, Neon Signal Devices v. Alpha-Claude Neon Corp., supra; or where a consolidation has been effected, Lightner v. Boston & A. R. Co., 15 F.Cas., page 514, No. 8,343. However, in Hapgood v. Hewitt, 119 U.S. 226, 7 S.Ct. 193, 30 L.Ed. 369, a corporation which had a license under a patent was dissolved and all of the assets passed to a receiver in liquidation in accordance with the laws of the state of Missouri. Subsequently a new corporation was formed in another state and all of the dissolved corporation's assets were assigned to the new one. The Supreme Court of the United States held that the right in the license was extinguished on the dissolution of the corporation.

Turning to the case before us, under Oregon law a foreign and domestic corporation may merge or consolidate, Oregon Revised Statutes, Chap. 57, § 57.485, but this procedure was not here followed. Instead, the Stout corporation was dissolved, the assets were distributed to the shareholders, and the shareholders sold the business to Farmland. Upon the dissolution of Stout corporation then, under the holding of the Hapgood case, the license right was extinguished. We are, therefore, constrained to hold that the respondent Farmland was not the successor of Stout in regard to this license.

This conclusion that Farmland is neither an assignee nor a successor of Stout removes the foundation upon which the trial court based its finding as to the computation of the royalties between respondent and appellant. If Farmland has no interest in the license agreement, then there cannot be any declaration of Farmland's duties in respect to the royalty provisions of that license agreement. Accordingly, we conclude that a consideration of appellant's other contentions is unnecessary.

That part of the judgment decreeing that respondent is the assignee of Stout, that respondent is the successor of Stout, the declaration of respondent's duties in respect to the royalty provisions of the license agreement, and adjudging costs to respondent is reversed; and that part thereof denying injunctive relief, accounting, and damages and adjudging appellant to be the assignee of Mansur is affirmed; appellant to recover costs.

McMURRAY, Justice pro tem.

SCHOTTKY and PEEK, JJ., concur.

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